1. Define Production. What Are the Factors of Production?

1. Define production. What are the factors of production?

 Define production:
Production means the creation of Utility. Through production inputs are converted into output which can satisfy or meet wants or demands. So production is a process of transforming inputs into useable outputs. Utilities are created in three forms such as (i) Changing the form (ii) changing time and (iii) changing place.
Example: Wood in a forest generally has no utility to a consumer but cutting the wood, changing its shape or form it can be used for furniture or other uses.
 The factors of production:
There are four factors of production:
(i) Land
(ii) Labour
(iii) Capital
(iv) Organisation or Enterprise

Land: it is a natural factor or nature’s gift to man. Land is fixed in quantity. It can be transferred but its ownership can be transferred.
Labour: Labour is defined as both physical and mental work which is taken for monetary consideration. Any exertion of mind or body undergone partly or wholly with a view to some good other than the pleasure derived directly from the work is called labour.
Capital: Capital refers to that part of men’s wealth which is used in producing further wealth or which yields an income.
Organisation or Enterprise: The role that the entrepreneur plays consists in coordinating and correlating the other factors of production. Entrepreneurs' function is to initiate a business enterprise by mobilizing and harnessing the necessary productive resources. He takes the final responsibility of the business enterprise- risk taking and uncertainty bearing.

2. What are the forms of Entreprenurial Organization?

 Forms of Entrepreneurial Organization
A. Sole Proprietorship or Individual Entrepreneur
B. Partnership
C. Joint Stock Company
D. Cooperative Enterprise
E. Public Enterprise
F. Multinational Corporations

3. What are the advantages of Economies of large scale Production?

 Economies of Large Scale Production:
 The advantages are as follows:
 Efficient use of capital equipment
 Economy of specialized labour
 Better utilization and greater specialization in management
 Economics of buying and selling
 Economies of the overhead charges
 Economy in rent
 Experiments and research
 Advertisement and salesmanship
 Utilization of by products
 Meeting adversity
 Cheap credit

4. What are the laws of returns? What is meant by marginal rate of technical substitution (MRTS)?

 The laws of returns:
There are three laws of returns:
A. Law of Diminishing Returns
B. Law of Increasing Returns
C. Law of Constant Returns

Law of Diminishing Returns:
This law states that the return of additional input use is diminishing as more and more inputs are used for increasing the production. An increase in capital and labour applied in the cultivation of land causes in general less than proportionate increase in he amount of produce raised, unless it happens to coincide with an improvement in the art of agriculture.
Law of increasing returns:
This law states that the returns of additional inputs used will be increasing with the increase in inputs. When the increase in output is higher or more than proportionate of inputs it is called the law of increasing returns. Due to the economies of scale , specialization of labour, increase in productivity, use of hi-technology etc. can contribute the increasing returns.
Law of Constant Returns:
Output is increased as proportionate to the inputs.

 Marginal Rate of Technical Substitution:
Marginal Rate of Technical Substitution (MRTS) refers to rate of substitute of one input for another. It is rate at which the inputs are substituted to each other. For one unit of labour how much capital is to foregone to keep the total output same.
MRTSLK = (-)dK/dL < 0, or MRTSKL =(-) dL/dK AP
 As TP increases MP reaches its maximum first, then MP declines, AP still rising but MP> AP
 AP reaches its maximum, AP = MP, then AP is falling but AP > MP
 TP reaches its maximum, MP becomes Zero, AP >MP

6. Draw Short run and Long run total cost curves.
Short Run: AC = TC /Q AC= TFC /Q + TVC /Q AC = AFC + AVC

Long Run: AC = TC/Q = TVC /Q = AVC
AC increases first and as output grows AC increase.

7. Show the Relationship Between AC and MC.

 Relationship between AC and MC:
 As output increase TC increases. Both AC and MC declines but AC remains higher than MC.
 MC becomes minimum and stars to rise, AC is still greater than MC but becomes minimum and then rises
 When AC is minimum then AC =MC
 After AC = MC , MC is greater than AC 8. What is the Relationship Between MR and AR.

 Relationship between MR and AR:

9. Show the breakeven level by a figure. What the formula for breakeven output?
 The breakeven level by a figure:

 The formula for breakeven output:

TR = TC
PQ = F + vQ
PQ – vQ = F
Q(P – v ) = F
Q = F /(P-v)

10. What are the investment decisions by using NPV?

 The investment decisions by using NPV: All investments whose net present value:
- is zero, then, it will be the same as the alternative investment;
- is greater than zero, in comparison to alternative investment, it is better to invest
- is less than zero, then do not invest C1 C2 C3
NPV = Co + ------ + ------- + ------- = result 1.10 1.10² 1.10³

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